The Fascinating, Troubling Case of In Re Fundamental Long-Term Care Inc.
I have written before about allegations of “bust out schemes” in long-term care companies. The theory is that operators of businesses facing huge obligations, especially obligations arising from court judgments based on negligent care in nursing homes, try to transfer and hide assets to avoid paying the legal damages. Allegations of this form of fraud are at the heart of a complicated case, In re Fundamental Long-Term Care Inc., pending in the bankruptcy courts of Florida, focused on operations in that state, but also in Illinois and Maryland. The allegations are wild, with alleged manipulation of an elderly graphic artist, now himself a resident of a nursing home, to “buy” the shell company that was saddled with $119 million in default judgments arising out of two wrongful death cases dating back to 2003, plus perhaps as many as 150 additional, pending claims.
What’s the latest news on the case, as reported in The Chicago Times and the on-line Insurance Journal?
The presiding U.S. Bankruptcy Court judge, Michael Williamson in Tampa, Florida, has announced a “tentative ruling” that owners of the multistate chain of nursing homes have committed fraud by transferring liabilities to an asset-less shell company, in order to isolate responsibility for more than $2 billion in jury verdicts. At the same time, the judge apparently indicated he sees no evidence to hold a private equity firm — and probably the defendant with the deepest pockets — liable for the fraud commited by the nursing home companies it provided with financing. Apparently the judge’s “tentative ruling” is intended to encourage the parties remaining on both sides of the case to be realistic during mediation sessions ordered by the court to take place in January.
In addition to the extraordinary dollars involved in the alleged fraud, media sources have covered the case closely because Illinois Governor Elect Bruce Rauner was once a manager of an investment firm involved in financing for the nursing home chain. Governor-to-Be Rauner has not been a defendant in the liability cases, and has strongly denied any knowledge or responsibility for the alleged fraud.
The case is In re Fundamental Long-Term Care Inc., 11-bk-22258, 13-ap-00893, U.S. Bankruptcy Court, Middle District of Florida.